Ethereum is an open-source digital platform that uses blockchain technology for the creation of decentralized applications. Created in 2015 by Vitalik Buterin, this network has become a benchmark in the cryptocurrency industry, and its coin, Ether, is positioned as the second cryptocurrency with the largest market capitalization, only behind Bitcoin. In this article, we will review what Ethereum is, its origins, and its main features.
Since the creation of Bitcoin in 2009, a wide variety of cryptocurrencies have emerged, increasing the popularity of this market to the point of transforming it into an asset of interest for many investors in the financial markets. Among these cryptocurrencies, one that stands out for its growing popularity is Ether, known mostly by the name of its network, Ethereum, a currency born in 2015 that has been able to position itself as the second with the largest market capitalization. But what is Ethereum fundamentally and what are its advantages?
What is Ethereum?
Ethereum is a platform that is open source and uses blockchain technology to create both applications and decentralized projects.
Created in 2015 by Vitalik Buterin, this platform was launched with the idea of offering a collaborative space where users can make transactions without the need for intermediaries in a secure manner and with full transparency.
As a decentralized platform, Ethereum has no dependence on any regulatory body or government. To guarantee security, this network uses so-called smart contracts that are executed both autonomously and automatically when certain previously established conditions are met. These contracts, executed on the Ethereum network, are cryptographically signed by the interested parties and are based on blockchain technology, which facilitates the use of all data to protect against cyber-attacks. Additionally, because they are executed automatically when certain parameters are met, they save time and money as well as reduce potential errors.
As the pioneer network in using these smart contracts, Ethereum has positioned itself as a benchmark in the cryptocurrency sector. Since its launch in 2015, the network has been gaining popularity as a result of its flexible and innovative character, which provides the possibility for users to execute a wide variety of decentralized transactions, allowing its cryptocurrency Ether, along with Bitcoin to be the most important in the market.
Origin of Ethereum
The history of Ethereum began in 2013, just four years after the launch of Bitcoin, when programmer Vitalik Buterin presented a project to expand Bitcoin’s functionalities, which were limited to the financial field, seeking the development of decentralized applications.
This proposal, developed in a white paper, was not accepted by the Bitcoin development team, although it did attract the interest of other followers of the currency, who decided to join Buterin to refine this new initiative. Among the first followers were Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, and Mihai Alisie, who would eventually become co-founders of Ethereum.
After this first contact, Buterin presented the project at a conference on Bitcoin held in Miami in early 2014, where he gained a lot of notoriety. To make the proposal a reality, an ICO (initial coin offering) was held that same year in which the network’s first Ether tokens were offered.
Currently, it is estimated that there are more than 110 million Ether tokens in the world. In recent weeks, the SEC has begun proceedings to approve Ethereum ETFs, although the date when these instruments will become available is not yet known.
What is the Difference Between Ethereum, Ether, and ETH?
Although people often use “Ethereum” to refer to the cryptocurrency, the currency itself has a specific name: Ether, abbreviated as ETH. Understanding the differences between these terms is essential in the cryptocurrency sector:
Ethereum: This is the name of the blockchain network where transactions are carried out.
Ether: This is the token or currency of the Ethereum platform. Similar to Bitcoin, Ether can be sent, received, and stored. Unlike Bitcoin, Ether’s issuance is not limited to a specific number, and its price can be influenced by supply and demand. Ether is also used to pay transaction fees on the Ethereum network.
ETH: This is the acronym for Ether and is the term used on investment platforms when trading it.
What is Ethereum and What Aspects Affect Its Price?
As with financial instruments, the value of Ethereum can vary depending on different circumstances. This cryptocurrency exhibits the same volatile nature as other cryptocurrencies in the market and can be influenced by the behavior of the original cryptocurrency, Bitcoin. However, other elements can also impact the price of Ethereum:
Supply and Demand: Like other assets, the price of Ethereum can be affected by supply and demand. Higher demand and lower supply can drive the price up, while lower demand and higher supply can push it down.
Regulations: The cryptocurrency sector is often criticized for its lack of rules and regulations. The adoption of regulations that legitimize the use of cryptocurrencies can positively influence Ethereum’s price. Conversely, restrictive regulations can negatively impact its price.
Technological advancements: Throughout its history, Ethereum has undergone several technological updates aimed at improving its performance. These upgrades can have a positive impact on its price, especially if investors see them as signs of the project’s long-term sustainability. Since its release, Ethereum’s price has performed favorably, reaching its highs in 2021. Recently, this cryptocurrency experienced its best session since 2022, surpassing 20% appreciation in the week of May 20, 2024.
The Differences Between Bitcoin and Ethereum
In the realm of cryptocurrencies, Bitcoin and Ethereum remain the two most popular and capitalized currencies. Although both share certain characteristics, such as relying on blockchain technology and being easily exchanged and traded between users, there are significant differences between them that are worth noting:
Origin: While Bitcoin was conceived as a decentralized alternative to traditional currency, Ethereum emerged as a platform on which users can carry out transactions without the need for intermediaries and in a secure manner.
Supply: Since its inception, the supply of Bitcoin has been limited to a total of 21 million, which is why a halving is carried out every four years. The supply of Ethereum, on the other hand, is not limited to a fixed amount; it is infinite.
Technology: While both Bitcoin and Ethereum use blockchain technology, the mechanisms they employ are different. Bitcoin uses “Proof of Work” (PoW), a mechanism whereby miners must solve complicated mathematical exercises to verify and add all transactions to the blockchain. Ethereum, on the other hand, has abandoned this method to adopt “Proof of Stake” (PoS), where cryptocurrency holders use their currencies as collateral for block validation.
Scalability: The transition to the “Proof of Stake” protocol allows Ethereum to process more transactions than Bitcoin, which is limited by the “Proof of Work” mechanism. Specifically, Ethereum is capable of processing up to 30 transactions per second, compared to Bitcoin’s seven. Additionally, Ethereum blocks typically take about 15 seconds to aggregate, whereas in Bitcoin this time can extend up to 10 minutes.
Conclusion
Ethereum has turned out to be one of the most relevant blockchains when it comes to illustrating the enormous potential of decentralized finance. While Bitcoin was the first cryptocurrency to lay the foundation for abandoning fiat currencies, Ethereum has shown that blockchain technology can fulfill many functions beyond eliminating intermediaries in transactions. While cryptocurrencies can contribute to the diversification of an investment portfolio, it should not be ignored that there is uncertainty regarding their legislation and regulation, as well as their high volatility, factors that lead us to exercise extreme caution and not to take for granted that past returns will be consistently repeated in the future.
